JBCHEPHARMNSEQ2 FY'23November 18, 2022

JB Chemicals & Pharmaceuticals Limited

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Key numbers — 40 extracted

36%

and continued momentum in the international operations. In quarter two FY23, our revenues showed 36% improvement to INR 809 crore. In the domestic market, we continue to see buoyant trend for our bu

INR 809 crore

entum in the international operations. In quarter two FY23, our revenues showed 36% improvement to INR 809 crore. In the domestic market, we continue to see buoyant trend for our business with a revenue of 434

434 crore

ore. In the domestic market, we continue to see buoyant trend for our business with a revenue of 434 crore. Organic growth for the quarter was mid-teens, once again, JB outpacing industry growth in quarter

4.12 crore

p five brands. Prescription wise JB ranked 15th in IPM with quarterly prescriptions increasing to 4.12 crore in quarter two FY23 from 2.65 crore in quarter two FY22 showing a growth of 55%. Just to give a

2.65 crore

ranked 15th in IPM with quarterly prescriptions increasing to 4.12 crore in quarter two FY23 from 2.65 crore in quarter two FY22 showing a growth of 55%. Just to give a brief highlight on what has been hap

55%

reasing to 4.12 crore in quarter two FY23 from 2.65 crore in quarter two FY22 showing a growth of 55%. Just to give a brief highlight on what has been happening in our inorganic business that we acq

25%

we acquired in the last six to eight months: Our portfolio of acquired brands have shown a robust 25% growth in quarter two FY23 as per IQVIA data, and on a like-to-like basis. As per IQVIA data, the

50%

sis. As per IQVIA data, the acquired portfolio from Sanzyme has performed well, where Sporlac grew 50% and retained number one rank in its covered market space. Azmarda, which represents an extension

46%

which represents an extension of our leadership portfolio in the cardiology segment, has delivered 46% growth. Heart failure is relatively a new sub-segment and vastly under served. During September '2

64%

orded, and that was translated into best ever sales in our International results. CMO revenue were 64% higher in quarter two FY23 year-on-year. This segment today accounts to 28% to our international s

28%

ults. CMO revenue were 64% higher in quarter two FY23 year-on-year. This segment today accounts to 28% to our international sales, and in H1 FY23 from 20% in FY22. Within the CMO segment – JB

20%

3 year-on-year. This segment today accounts to 28% to our international sales, and in H1 FY23 from 20% in FY22. Within the CMO segment – JB has earned a global niche in production and marketin

Guidance — 20 items

Nikhil Chopra

opening

“I will be followed by our CFO – Lakshay Kataria who will bring the financial perspective to you.”

Nikhil Chopra

opening

“Following the remarks, we will be happy to address queries that you may have over a discussion.”

Coming to international business

opening

“We expect our domestic business to continue outperform the market growth.”

Lakshay Kataria

opening

“As we had mentioned earlier, we aim to maintain our EBITDA margins between 24 to 26% for FY23 with a focus on revenue growth.”

Rahul Jeewani

“And given the strong growth which we have seen on Azmarda this year, how do you view, or how do you see this brand growing next year given the fact that Jan '23 the patent for Azmarda expires?”

Nikhil Chopra

“Volumes over a period of time in the next year should go up by two to three times.”

Rahul Jeewani

“And given the strong growth which we are seeing in Azmarda this year, do you think that this high base will become a headwind for us going into next year as far as Azmarda's growth is concerned?”

Kunal Khanna

“So, on the Azmarda front, Rahul, you know, yes, we have been able to significantly grow the brand over the last six months, but as we have maintained that given the overall potential which we see, even if there is some price erosion which will happen, we believe volumes will be able to neutralize a significant part of that price erosion.”

Nikhil Chopra

“And the second thing is overall, from a margin standpoint, we will still be at a better position despite this price erosion, because we will be looking at local sourcing options.”

Nikhil Chopra

“You know, overall, it will, you know, just add to our profitability despite the price erosion, because some level of that will get neutralized because of volume uptake, and there will be significant benefits which we will get on the local sourcing upfront which would help us drive margins better.”

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Risks & concerns — 6 flagged

The margin saw an impact of inflationary pressure on input costs and packing material cost and also impact of low margins from Azmarda.

— Lakshay Kataria

We are cautious and continue to monitor this situation specifically with respect to fuel and energy prices.

— Lakshay Kataria

And given the strong growth which we are seeing in Azmarda this year, do you think that this high base will become a headwind for us going into next year as far as Azmarda's growth is concerned?

— Rahul Jeewani

Apart from these on the home markets front, you know, we have like Nikhil stated on Russia, we are just very cautious.

— Kunal Khanna

These are studies conducted by FDA and, you know, EU regulatory authority, and it's clearly established that, you know, there is no risk of NDMA being linked to carcinogenicity for Ranitidine.

— Kunal Khanna

There have been some companies who may have kind of withdrawn the product because of their focus on, you know, PPI versus H2RA, and given all the issues which happened almost four months back, but clearly enough clinical evidence, you know, this product has been there for almost 30, 40 years, and the recent studies suggest that there is no cancer risk associated with the NDMA, you know, levels.

— Kunal Khanna

Q&A — 12 exchanges

Thanks for taking my question, sir. Sir, can you please comment on what has led to strong growth in your required brands of Sporlac and Azmarda? You spoke about the fact that you are in the investment phase for Azmarda. So, what are some of these investment measures which you are taking? And given the strong growth which we have seen on Azmarda this year, how do you view, or how do you see this brand growing next year given the fact that Jan '23 the patent for Azmarda expires?

Nikhil Chopra

Rahul, overall, let me first answer your question on what is happening for Sporlac and Azmarda, what is happening on the ground? As what earlier we had commented that when we acquired this enzyme as a asset, there were three, four levers that we thought would help us in terms of inching up the revenues and improve the profitability which has helped us. First off, that was overall synergy that we see in the prescriber base. We already have experience of handling mass brands, which is a combination of Rantac and Metrogyl, which overall has helped us to manage Sporlac brand very well in this last

Sir, again on CMO segment, based on which strong order growth, now do you upgrade your guidance of CMO for the entire year or even 13% growth? And do you think that, you know, now the growth would be higher in this year?

Nikhil Chopra

So, growth would be higher as compared to where we stand and what we have guided, but also, Rashmi, what I shared earlier when Rahul was talking, please understand from where we are coming. This is a business that we do with many of our partners. In this business, we are not looking for a quarter or for a year. We are looking at a long-term perspective in this business. Earlier also, what I have commented that 60% of business should come from India formulation, short to midterm, and 20% of business mid to long-term, we are aiming that how do we at least get from the CDMO part of the business.

Thank you for the opportunity. Sir, two questions from my end on the India business. So, you explained the key brands you have acquired, but within the quarter, how was the performance of the base brand of Cilacar, Rantac, if you could, you know, please throw some light there, you know, what is driving this growth? And secondly, in terms of our MR productivity, so now that the India business seems to have crossed our earlier threshold of 100 crore per month run rate, where do we see the productivity inching up considering that there is a fair bit of MRs also been added post the previous acquis

A. Puranwala

And just one final question on the CDMO. So, sir, at this quarterly run rate of 110 crore, what is the capacity which is currently underutilized or what is left? See, purely from a capacity standpoint, we can go up almost 70 to 80% more in what we are currently manufacturing. You know, there are some packaging debottlenecking, you know, initiatives which are underway. But we have a very strong, you know, manufacturing capacity, which can be utilized to almost double the business from where we stand right now.

So, firstly on domestic business, I mean, I think they are performing very well, and we have closed three transactions this year, and all seem to be doing either in line or better than expectation. How should we look at M&A transactions going forward? And any specific category that you want to strengthen further from your own through acquisitions? So, we are evaluating assets in terms of inorganic opportunities as and when it is coming. We would, like given a choice, we would like to acquire something in the world of cardiology, pediatrics, nephrology, respiratory. That is what we have stated

Tausif

That's helpful. And sir, for these businesses we don't need to add any MRSH, right? No. We don't need. Actually, 3 to 12 months we don’t need to add anything. And second on exports business, I mean, seems to be doing very good from the last two quarters. So, is it possible to share what would have been the constant currency growth in this quarter? And any specific market that would have done much better for us, which markets would have done better? Sorry. What was the first line? Constant currency growth in export formulations for Q2. Nikhil, I will pick that, yeah. So, from a currency perspec

Thanks for the opportunity. Again, I have a question on CMO business. So, this year we have benefited because of the cold and cough infections during the summer time. So, I was wondering do you expect something like that benefiting in next year also?

Kunal Khanna

See, we are not too stressed about the cyclical variations, right? The important thing is we are broadening our portfolio as well, and we are working on life cycle management for the big brands, which we are currently supplying to our principal partners, and going beyond the conventional cough and cold, you know, therapeutic segment. We have always maintained when we look at finished dosage formulation, lozenges as a category, we wanted to look at areas like immunity, sleep, motion, sickness. All those things are underway or under development with our partners, not really restricted to cough a

: See, overall, if you look at the market growth, Cyndrella, the market growth is also close to 40%, and this is on a week days of last year. But when you look at from a JB perspective, overall our mass brands, particularly in first half of the year, continue to do well, because of the acute season dominant. We have a steady flow of growth for our chronic part of the business, which is a combination of Cilacar and Nicardia. But what has happened for JB that we were generating around close to taking into consideration full portfolio, we were earlier generating close to around 1.2 crore prescrip

Nikhil Chopra

Quarter four will be somewhere soft, but quarter three would be in line with, probably, in line with what we have performed, because now the mix also for us is somewhat we are trying to look at not easy in short period of time to change the mix, but if you look at the chronic contribution is now close to around 52% as compared to which was 45% around 1, 1.5 year ago. So, that is helping us in terms of bringing more stability to the business as compared to depending on the season. Cyndrella Carvalho: That is helpful. And one last question. How should we look at the top line growth? I mean, the

Thanks for taking my follow-up question, sir. Now on the base business in first half, we have seen mid-teens kind of a growth on the organic base portfolio. So, if you can split that out between contribution from volume, price, and new introductions? And with respect to some of the new therapies which you have entered, which is respiratory, pediatrics and nephrology, how has been the traction been in some of these newer therapy areas for us? See, overall, if you look at mid teens growth that we have achieved for H1, 7 to 8% would be price driven growth, 5 to 6% would be volume driven growth, a

Rahul Jeewani

Sure, sir. And would you like to comment anything on Sitagliptin, how that launch has been for us? Very early. Very early. Two, three months. Very early to share about Sitagliptin. And just a few questions for Lakshay. Sir, if we now look at your gross margins, your gross margins have stayed flat sequentially, despite Azmarda growing very strongly during the quarter which implies that your base business would have seen some sort of a profitability improvement. So, how are you looking at your base business gross margins ex of Azmarda going forward? Like I mentioned from a margin perspective, yo

Sir, just one clarification needed on Ranitidine. You seem confident that the government will not ban this molecule. So, is this based on your conversation with government authorities?

Kunal Khanna

See, with respect to Ranitidine, I think technically there has been quite a few studies which have been done over the last three years trying to link the NDMA levels with the carcinogenicity of this product, and all of them, and these are not studies which have been locally conducted. These are studies conducted by FDA and, you know, EU regulatory authority, and it's clearly established that, you know, there is no risk of NDMA being linked to carcinogenicity for Ranitidine. : Ranitidine globally as well continues to be in the WHO GMP list. There have been some companies who may have kind of wi

So, I have a couple of questions. So, first is on Cilacar. So, in Cilacar, have we seen any expansion in coverage among the cardiologists? And is there any, you know, plan to, you know, scale this up as well, given that this is a large opportunity area for us? Not only at the level of cardiologists, but equally the opportunity lies across specialty when we talk of majorly in our people on the ground, a team of 500 people when they promote Cilacar, they are promoting to cardiologists, physicians, nephrologists. And also, I am happy to share that in patients who are suffering with, who are diabe

Sayantan Maji

So, basically, what I was hinting at is, is there any, you know, benefit that we can leverage from promoting our smarter and, you know, leverage relationship with cardiologists to promote this as well? So, do you see any initial indications with? 100% if you look at the medical fertility and with what we have done in the era of heart failure, the agenda going ahead is to prevent the progression of hypertension to heart failure. So, it's a combination of Cilacar and Azmarda where our teams have been working together, and at least help overall the patients who are suffering, who are undiagnosed

Thanks for taking my question. So, just wanted to ask one on Azmarda given that the LOE is in January. So, do we see a couple of months of no primary sales ahead of that? I mean, so this quarter could Q3 be impacted as a result of that? And then post whatever pricing settle, I mean, you could launch with a newer price post the LOE. How do we see the cadence there?

Kunal Khanna

So, there may be a cooling period for 10 to 15 days, but not to the extent as stated by you, you know, a couple of months. We will certainly have a cooling period to ensure that the stock which is there in the market gets liquidated, and then we refill the channel with newer prices. The good thing about this product is that, you know, there is a very strong secondary velocity and demand. As a result of which, you know, the channel does not carry a significantly high inventory. So, whatever cooling period will be there, we will try to restrict it to, you know, a couple of weeks, and then see ho

Sir, we did 434 crore in domestic business this quarter. What would this number be without considering the acquisitions?

Nikhil Chopra

This is full business that we have reported which is a part of that is what we have reported. So, if you are asking actually, essentially, the contribution of organic versus inorganic acquisitions, broadly, you can, our acquired portfolio runs into into to 82 to 84 crore. That's the number. Thank you so much. And the other question was about the ESOP cost that we will be incurring in FY24 and FY25? So, basically, this quarter we had a cost of roughly about 18 crore. This fiscal will be about roughly 71 odd crore. And as we had carried earlier, you will start seeing a step decrease in the ESOP

Thank you, Aman. I would like to just hand it over to Nikhil Chopra for any closing comments.

Nikhil Chopra

First of all, thank you all for attending the conference call, and we will continue to focus on our entire strategy that we have spoken earlier in terms of along with the revenue drivers which are there in place in terms of top line, in terms of EBITDA, profitability which we aim always should be better as compared to top line growth. Also, what we have kept in mind in terms of how do we look at improving the productivity and also looking at the cost optimization initiatives which are fully in place, which will only help us in creating strong operating leverage, which will help us to maintain

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Speaking time

Nikhil Chopra

Moderator

Kunal Khanna

Lakshay Kataria

Rahul Jeewani

Tausif

Shrikant Akolkar

Rajat Setiya

Sayantan Maji

Sonal Gupta

Opening remarks

Jason D'Souza

Welcome to the Q2 Earnings Call of J.B. Pharma. We have with us today, Mr. Nikhil Chopra, CEO and Whole Time Director; Mr. Kunal Khanna, President; and Mr. Lakshay Kataria, Chief Financial Officer at J.B. Pharma. Before we begin, I would like to state that some of the statements in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q2 FY'23 investor presentation that has been sent to you earlier. With this, I would like to hand it over to Mr. Nikhil Chopra to begin the proceedings of the call for his opening comments, after which Mr. Lakshay Kataria will address the financial highlights. Over to you, sir.

Nikhil Chopra

Thank you, Jason, and good afternoon to everyone, and a warm welcome to those joining us today for our discussion on the operating and financial performance for J.B. Pharma during Quarter Two and H1 FY23. I will begin with a commentary on our quarter two performance and share the perspective on the business. I will be followed by our CFO – Lakshay Kataria who will bring the financial perspective to you. Following the remarks, we will be happy to address queries that you may have over a discussion. Dear friends, I am happy to, I am pleased to share a healthy set of numbers on the top line during quarter two supported by healthy traction in domestic market and continued momentum in the international operations. In quarter two FY23, our revenues showed 36% improvement to INR 809 crore. In the domestic market, we continue to see buoyant trend for our business with a revenue of 434 crore. Organic growth for the quarter was mid-teens, once again, JB outpacing industry growth in quarter two F

Coming to international business

Our international business reported a strong trend with growth across all segments. CMO revenues were the highest that we recorded, and that was translated into best ever sales in our International results. CMO revenue were 64% higher in quarter two FY23 year-on-year. This segment today accounts to 28% to our international sales, and in H1 FY23 from 20% in FY22. Within the CMO segment – JB has earned a global niche in production and marketing of lozenges, especially in medicated and herbal varieties. Our teams are constantly at work with research in lozenges and liquid formulation with important clients, and we shall continue investing for further scale of this business. Our formulations and API segments also delivered double-digit performance with our home markets of South Africa and Russia performing as per our expectations. Momentum continues to build up in our international operations, despite the situation that we are facing in Russia and CIS region, has presented us with a favora

Lakshay Kataria

Thank you, Nikhil. A very good afternoon to all of you, and welcome to our earnings call. I shall now cover the highlights of our financials for Q2 FY23: On the revenue front, the domestic and international business stood at a mix of 46/54 of the total revenues respectively. While the domestic business recorded mid-teen growth organically, strong performance of acquired portfolio that Nikhil mentioned earlier, helped maintain another quarter of 400 plus crore revenue in the domestic business. JB Pharma 's international business continued its strong momentum and grew at 28% year-on-year to deliver 375 crore in Q2 on the back of good performance in all the three business segments, that is export formulations, CMO and API. Gross margins for the quarter were at 63%, similar levels of last quarter, and compared to 65% in the previous year. The margin saw an impact of inflationary pressure on input costs and packing material cost and also impact of low margins from Azmarda. As the quarter pr

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